Friday, February 18, 2011

Car Loans

Car loans can be very tricky with dealers having various offers in terms of financing. I will break down a couple options you can get when purchasing a car.

0% Financing
This is a payment plan with no interest on the principal. The downside to this is the sticker price may be higher than what it would be with a 3% interest rate. On paper it sounds like a good deal, but dealers may just increase the price of the car so that it would be no different than paying a low price with a minimal interest rate.

$X Credit with higher interest rate
Don't immediately write off a high interest rate combined with a large cash credit at signing. This ends up lowering the principal on the loan, if combined with the higher interest rate this could even end up being lower than a 0% loan.

$X Credit with lower interest rate
The dealer may attempt to give you a smaller credit at signing combined with a lower interest rate. Again with the other options you may be able to save money with this deal depending on how low the interest rate is in comparison to how much credit you receive at signing.

Cash Purchase - Bank Loan
Another option, depending on how good of a credit and bank history you have. If you can negotiate a low enough cash price and are able to get a loan from your bank this may be the cheapest option. Again it varies on what interest rate you get and low of a cash price you can get.

Loan Length
Dealers will also try and modify the loan length. Typically the longer the loan the more interest you will be paying. Once again you will have to evaluate based on the principal and interest rate.

Get the best deal
When you go to the dealership to get your car get the dealer to give you multiple options. The options should all include varying principals, down payments, interest rates, loan terms and cash credits. Use the calculator on the right side of the blog to type in the variables and see what will give you the lowest monthly payments.

Tuesday, February 15, 2011

What Loan is Right for Me - No Collateral

Unsecured Loans 
These loans do not require any collateral and do not require you to withdraw the entire balance at the initial signing which means you are only paying interest on what you use. Since you are not using any collateral your interest rate will be higher than a secured loan.

Credit Card
This is the most common loan, you purchase everything on it than pay it off the next month. Only a minimum balance payment is required, but the remaining balance will be charged a very high interest rate usually 19.9% at the very minimum. A good rule of thumb is not to spend on your credit card what you could buy with cash.

Lines of Credit
A very underrated and under appreciated loan. If you have a reasonable credit score you will be eligible for a line of credit from your bank. This is a loan that is available for a certain amount, but you do not have to use the entire amount available. You should see if you are eligible at your bank because the interest rate is much lower than a credit card usually 3-8%. Of course your rate will be relative to your credit history. You can use this loan to pay off your bills and credit cards, but at a much lower rate if you find yourself having credit card debt for daily spending.

Overdraft Protection
This is essentially a loan to you if you happen to overdraft your account. I would strongly recommend against this protection if you are eligible for a line of credit. First you have to pay a monthly fee regardless if you use the service or not. Second you will still have to pay a much higher interest rate if you do end over drafting in addition to a fee each time. Get a line of credit and move money into your spending account and you will never over draft and it will be a much lower cost.

Standard Demand Loan
This is a very common loan where you go to the bank and they can quickly see based on your history what you are eligible for. The interest rate will be higher than a secured loan and relative to a line of credit depending how long you have to pay it off and how much it is. The one risk with this loan is the bank can call in the loan at anytime, which means you have to pay it off immediately at the banks desire.

Some Quick Tips for Better Loans

Here are some quick tips to get favorable loan terms. I will keep adding to section when I remember certain things. Which include a longer grace period, lower interest rate, less collateral, better service and less surprises.

1. Don't take loans you don't think you can pay. Defaulting on loans will affect your credit score and cause you a lot of headaches for up to 7 years.

2. Earn the trust of one bank. Do all of your banking at one bank. If you have good history with them, they will be able to see how good of a customer you are which will result in bigger loans and lower interest rates.

3. If you are under 25 take all the credit the bank is willing to give you. Don't use if you don't think you can pay it off. But starting to earn credit and show your credit worthiness will pay huge dividends when you are older and need a mortgage or a luxury car loan.

Welcome to my Blog

I hope for this blog to be a one stop information stop for all the loan information you may need. It will cover all types of loans, how to get one, how to not get ripped off and how to pay them off or restructure if necessary. Most things I talk about will be more relevant to the US and Canada, not really sure how stuff works in Australia or Europe.